What is 0% car finance?

While you might be used to seeing ads for car finance displayed with different representative APR numbers next to them, you might be more surprised to come across a loan advertised with 0% interest. With a 0% APR loan – sometimes known as interest-free car finance – you won’t be charged any interest for borrowing money to buy a car.

0% car finance is available on both hire purchase (HP) and personal contract purchase (PCP) loans and allows you to spread the cost of a new or used car into manageable monthly repayments for a set period. Unfortunately, zero-interest loans aren’t very common and are often only available for a limited time. Even so, it’s easy to understand their appeal. An interest-free loan could help you spend less over the course of your loan agreement.

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Am I eligible for interest-free car finance?

Each lender that offers interest-free car finance has different eligibility requirements. Their decision to approve or reject an application can be based on several factors, including your current financial circumstances, credit score, and affordability.

You may find that interest-free loans require you to have a stronger credit score than you would need for other types of car finance. It’s all about risk. 0% interest loans pose a higher risk to lenders, who may only be willing to approve applicants whose creditworthiness is considered excellent.

While dependent on your current financial circumstances, you may also find it easier to secure a 0% finance loan if you are able to pay a large deposit, as this will lower the amount you need to borrow.

Can I get a 0% car finance deal with bad credit?

Life can be complicated, and despite our best intentions, we can all fall behind with repayments or need to seek debt management solutions that may harm our credit score. If you have a poor credit score, you might find it difficult to secure a 0% car finance deal. These loans are typically available only to those with good or excellent credit scores.

If you’re worried about whether you’ll be approved, you could check your eligibility online before applying.

A soft credit check will usually be conducted as part of the process. Regardless of whether the lender will likely be able to approve your application, the check won’t be visible on your credit report and it won’t affect your score. Don’t worry if you have bad credit and don’t qualify for 0% car finance, as you may be eligible for other finance options with affordable interest rates.

What does APR mean?

APR is short for annual percentage rate and represents the total cost of borrowing to the customer over a year. It’s shown as a percentage and includes all interest and charges, for ease of comparison. As your loan term progresses, the APR will be charged on your outstanding debt rather than the original loan amount. You’ll typically see the APR displayed alongside car finance deals, making it a convenient measure to compare the different options available to you.

A representative APR is used by lenders to show you how much you might pay for an advertised loan. It’s not guaranteed that this will be the APR you’ll pay, but at least 51% of successful applicants will receive this rate or lower.

Which cars are available with 0% finance?

Not every car is available with 0% finance. In fact, some vehicles are available with interest-free finance for a limited time, as these loans may be used by car dealerships to attract new customers. Most cars with 0% finance are brand new and might be the models that the dealership wants to sell quickly so they can make more space on the forecourt. You might also find that 0% finance is offered only on cars that are viewed as unpopular, such as models with unusual colours or undesirable modifications. If you’re happy to buy a car that’s a little less desirable, you may be able to find a deal with zero-percent car finance.

Can I get a used car with 0% finance?

You won’t easily find a used car with 0% finance, as this isn’t the norm. But if you do come across a 0% used car finance offer, it may be worth taking time to double-check the full terms and conditions and comparing the car’s purchase price with similar models of the same age and condition. You might discover that interest-free car finance doesn’t always offer the best deal, especially if the used car’s price has been inflated to make up for the lack of interest. 

Pros and cons of car deals on 0% finance

Considering a car deal on 0% finance? There are several pros and cons to consider:

Pros of 0% finance

  • You could spend less overall, as you won’t need to pay any interest on your loan
  • You may be able to secure a good deal if you can be flexible about the car’s colour or trim
  • You’ll only pay the purchase price of your chosen car
  • You may have lower monthly repayments without the interest on top
  • You may be able to afford a better car than you would if you had to pay interest

Cons of 0% finance

  • 0% finance is often only available to those with a strong credit score
  • You may need to put down a larger deposit to qualify
  • This type of finance isn’t often available on used cars or highly sought-after vehicles
  • The car’s purchase price may be inflated
  • Restrictions may apply to the loan term, deposit required, or finance product available

What documents will I need for 0% car finance?

When buying a car on finance, you’ll typically need to pass a credit check and an affordability check to demonstrate that you can keep up with your monthly repayments over the full loan term. Car finance in the UK is also available only to people aged 18 years and over.

Different finance providers may require different documents for a 0% finance loan application. However, most will ask for:

  • Proof of income (e.g., recent bank statements or payslips)
  • Proof of address (e.g., a utility bill or council tax statement)
  • Proof of ID (e.g., a passport or full UK driving licence)

How can I get the best 0% car finance deal?

So, you’ve made your mind up and you’re sure that a 0% finance deal is the right option for you. But how can you ensure you get the best deal?

Here are a few things that may be worth considering before signing your car finance agreement:

  • Checking over the terms and conditions can help you ensure that the interest-free savings aren’t cancelled out by other restrictions or charges
  • Consider whether the car price is fair by comparing it with similar makes and models
  • Find out whether any additional fees apply
  • Check whether any additional products have been included in the agreement, such as maintenance packages or car insurance

How can I save on car finance?

If you aren’t eligible for interest-free car finance or haven’t been able to find a vehicle offered with 0% APR, don’t panic! You could consider the following ways to help secure a cheaper car finance loan with interest included:

  • Put down a large deposit - The more money you can put down upfront, the less you’ll have to borrow from the lender. This could mean you have lower monthly repayments or can opt for a shorter loan term and pay less interest overall.
  • Choose a cheaper car - Buying an older car model or entry-level vehicle can also reduce the amount that you need to borrow.
  • Agree to a longer loan term - An increased term will allow you to split the total loan amount into smaller monthly repayments. However, if you choose this option, it may be worth bearing in mind that you could end up paying more overall due to the interest added over time.
  • Improve your credit score - While it’s not the only factor that lenders consider when offering a hire purchase loan, a strong credit score can reassure them that you’ll be a reliable borrower, and so you could qualify for a lower APR.

  • Check your eligibility without impacting your credit score
  • No deposit needed
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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.

Disclaimer: All information and links are correct at the time of publishing.

Helen Fox, Personal Finance Editor

Helen Fox

Personal Finance Editor

Helen is a personal finance editor who’s spent 11 years (and counting!) in the finance industry. She creates content on everything money with the goal of getting people thinking – and talking – about their finances in ways they may not have done before.